This invention relates generally to inventory management including supply assessment, commitment and replenishment processes, and more particularly, the present invention relates to a method for facilitating supply chain collaboration in a communications network environment.
Two problems facing supply chains today include: having insufficient quantities of materials on hand to satisfy customer demand which, in turn, can jeopardize a company's ability to do business, and having surplus inventory which is often derived from the effort undertaken to reduce the risks associated with not having enough materials. Having a surplus inventory causes a hold of cash and increases the risk of loss in assets due to factors such as obsolescence. Other causes of risk include unplanned or unexpected orders for goods, as well as order cancellations which may also impact inventory levels. It is more common, however, that factors not attributable to customer behavior are the cause of inventory management problems. Businesses are continuously striving to find new and better ways to improve their inventory management processes in order to reduce these business risks.
One of the reasons why current inventory management systems fail is due to ineffective demand forecasting methods and deficient supply replenishment processes utilized by supply management teams across many industries. Predicting future demand for goods and materials is fraught with uncertainties which are further fueled by dynamic economic conditions and fluctuating markets. This instability can make forecasting future supply needs especially difficult for the manufacturing industry. For example, if the manufacturer finds either an increased or reduced demand in the product compared to its forecast, strain is placed throughout the supply chain where overstocking or depletion of components can occur quickly. In addition, if the supplier cannot deliver the components, manufacturers will often not be able to react quickly to meet demand, seek alternative sources, etc. Without keeping large stock of components on hand at the manufacturer's site, supply problems occur readily. However, keeping large stock has additional problems of its own, such as higher storage costs, an increased loss probability because components become outdated, etc. Moreover, electronic parts tend to reduce in value with time (i.e., a part that the manufacturer purchases in January will cost less in March and much less in June and so on).
One solution developed to improve existing inventory management systems includes the establishment of storage warehouses or replenishment centers for facilitating quick and easy access to goods creating a buffer in the event of a sudden change in demand. Liability for maintaining and delivering these materials from the warehouse to the manufacturer typically remains with the supplier until a fixed point in time such as when the goods are ordered or a demand statement is issued by the purchasing manufacturer. The manufacturer benefits by reducing the costs associated with keeping inventory on hand and enhancing replenishment capabilities. By adding a third player (i.e., the warehouse) to the mix, however, additional problems in inventory management are presented. For example, coordinating supply requirements and forecasts, changes to these requirements, and their corresponding delivery schedules can be cumbersome and prone to error. Multi-party communications between supplier, warehouse, and buyer must be consistently accurate and reliable otherwise a breakdown in the supply chain can occur creating a ‘chain effect’ of inventory delays, and/or inaccuracies.
Software systems have been developed to address inventory replenishment problems utilizing various techniques. Internal Material Requirements Planning (MRP) or Enterprise Resource Planning (ERP) systems have been implemented to manage component supply and demand based on a forecast prepared by the manufacturer. As stated above, however, forecasts are imprecise, and often subject to change. In recent years, to better match actual production with forecasts calculated by the MRP system, a Just-in-Time (JIT) concept was developed. In a JIT environment, a network of phones and faxes is used to monitor each point in an assembly line where someone would be responsible for counting each set of components as they are assembled into a product (i.e. a manual pull system). Thereby, the responsible party would order additional components by phone or fax as components are running short. However, such JIT systems require constant monitoring, and still are highly dependent on accurate forecasts. Further, in a JIT environment when changes in demand are relayed through the supply chain from final product assemblers to the subassembly suppliers and ultimately to the component suppliers, even the slightest delay in communications can have a devastating impact on the integration and synchronization capabilities of the supply chain.
One popular trend in inventory management has evolved in an effort to alleviate some of the concerns associated with inventory management problems and is referred to as vendor managed inventory. Vendor managed inventory (VMI) solutions typically enable a retailer to downstream its inventory management processes to its suppliers in order to reduce the risks associated with surplus inventories and underages in inventory levels. VMI attempts to reduce these risks by monitoring retailer stock levels and planning inventory replenishment activities based upon forecast data and current stock figures.
While current VMI and software solutions provide some advantages in facilitating inventory management processes, they lack effective forecasting capabilities necessary to optimize inventory management goals. For example, supply collaboration solutions currently on the market do not factor constrained forecast data into the replenishment processes but instead utilize unconstrained forecasts which tends to result in an under-consumption of inventory, creating an unnecessary surplus. As the manufacturing world begins to move to build-to-order environment, greater demands are expected from the manufacturer to lower total costs in the complete supply chain, shorten throughput times, reduce stock to a minimum and provide more reliable delivery dates without constraining production due to supply issues.